FIRMS GET SHELTER IN COURT DEVELOPERS JOIN BANKRUPTCY TREND

Eastern Airlines has bought almost two years so far by filing for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Now the option that Eastern, Federated Department Stores, Best Products and other companies have turned to is becoming viable for troubled real estate developers and builders.

Last week, The Barbar Group of Boca Raton became the latest company to join the ranks of Chapter 11 reorganization.

"It's a sign of the times," said R. Thomas Powers, executive vice president of Goodkin Research in Lauderdale-by-the-Sea. "And unfortunately you're going to see more of this. ... by names that we never really thought of as having these kinds of problems."

With the filing "we'll be able to control our own destiny," said Anthony Barbar, executive vice president of the company founded by his father in 1975.

Local real estate experts were not surprised by The Barbar Group's move.

"There are options that (lenders and builder/borrowers) have when a development does not meet their expectations," said John Spies, a manager at American Metro Study, a housing research company based in Houston that has an office in Palm Beach Gardens.

"And Chapter 11 is becoming more popular ... among borrowers," Spies said.

The largest South Florida developer to choose Chapter 11 is Miami's General Development Corp., which filed on April 6 after being indicted on charges of fraud and conspiracy.

Chapter 11 affords companies protection from their creditors, giving them time to restructure their financial picture by refinancing loans, changing operations or finding new business partners.

And time is exactly what The Barbar Group needs to successfully complete its 830-acre Woodfield Country Club project west of Boca Raton.

The family-owned development company began construction at Woodfield Country Club in 1987, after the successful sellout of Woodfield Hunt Club, a similar but lower-priced custom-home community just south of Woodfield Country Club.

The company borrowed development and construction money from City Federal Savings in 1987. City Federal became insolvent and was taken over by the Resolution Trust Corp. in 1989.

That action was the start of The Barbar Group's problems, Anthony Barbar said.

"We've been working with the RTC for over a year to restructure our financing and were unable to make any progress. (Chapter 11) is a preferred solution to dealing with the RTC," he said.

But a Philadelphia attorney who is head of the real estate workout group at Ballard Spahr Andrews & Ingersall said Chapter 11 protection is not all it's cracked up to be.

In an interview with Builder magazine, a national trade publication, David Cohen advises builders to think twice before choosing Chapter 11.

Filing "doesn't produce cash; in fact, it's a cash drain," he said. "After filing, the builder cedes significant control over the business to a committee of his creditors."

And if the builder is unable to come up with a practical plan to pay off his debts, liquidation could follow, Cohen said.

"Chapter 11 is like having a gun with one bullet," Cohen told Builder. "It's better to just wave it around and let them know you have it. Once you file and fire that bullet, you're stuck with whatever you've done."

General Development still doesn't have a reorganization plan that has been approved by a bankruptcy judge, and creditors still have not been paid. If the company does emerge from Chapter 11, it will be as a shadow of its former self, said experts involved in the case.

Anthony Barbar said the management team at The Barbar Group considered all options for assisting the company before selecting Chapter 11.

"It's not the first option anyone wants to take," he said.

HARD TIMES

Some retailers that have filed for bankruptcy or closed:

DECEMBER 1989

B. Altman, shut down. Parent, L.J. Hooker Corp.

JANUARY 1990

Federated and Allied department stores, part of Campeau Corp., Chapter 11. The 246-store department store chain includes Bloomingdale's, Burdines and Maas Brothers/Jordan Marsh. Stores still operating, companies to close some stores as part of plan to come out of Chapter 11.

Channel Home Centers: Chapter 11, will close 34 of 86 home improvement centers; Best Products, Chapter 11, catalog showrooms, will cut spending and staff.

Note: Chapter 7 is filing for liquidation. Chapter 11 is protection from creditors while the company reorganizes and files a plan to repay creditors, usually at a percentage of what is owed on the dollar.